Defense bill requires company reporting and extends Jones Act

Defense bill requires company reporting and extends Jones Act

December 08, 2020 | By Keith Martin in Washington, DC

Two provisions in the National Defense Authorization Act that Congress is expected to send imminently to President Trump are getting attention from the project finance community.

Trump has threatened to veto the bill for other reasons. Congress could override the veto.

One provision would extend the US Constitution and federal laws to the US outer continental shelf and specifically to “installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources, including non-mineral energy resources.” The outer continental shelf is generally the area between 12 and 200 nautical miles offshore. It would be treated like a federal enclave.

This would have the effect of requiring offshore wind developers building on the US outer continental shelf to comply with the Jones Act when moving equipment from staging points on US land to the project sites. The Jones Act requires trade between points in the United States to be carried on US flag vessels.

It could have other implications as well. Similar questions could arise as came up when the US extended its territorial waters immediately adjacent to the US coastline.

The US formally declared that its territorial waters extend three miles from shore in 1793. President Ronald Reagan extended the US territorial waters to 12 nautical miles by presidential proclamation in 1988 after 104 other countries had already set their boundaries at 12 miles based on a 1982 United Nations convention on law of the sea. The US Navy had opposed extension in the past, as had the British Navy, as both wanted free passage closer to shore for naval vessels.

The US Coast Guard told a House committee three months after Reagan acted that the proclamation was intended to extend US jurisdiction only for international purposes, but was not meant to change the three-mile boundary for application of US domestic law.

Individuals born in the US are granted automatic citizenship. The manual used by US consular officials suggests that there are substantial legal questions around whether anyone born on a ship between three and 12 miles from shore is a US citizen.

Congress resolved the uncertainty about one aspect of the Reagan proclamation by clarifying by statute in 1996 that US criminal laws extend 12 miles out to sea.

The application of many US tax laws turns on whether activity takes place in the US.

Another provision in the defense bill would require corporations, limited liability companies and any “other similar entity” formed under US state or tribal law to file reports with the US Treasury disclosing their beneficial owners. Reports would also have to filed by foreign companies authorized to do business in the United States.

The provision is aimed at stopping money laundering by shell companies.

More than two million corporations and limited liability companies are formed every year in the United States.

The first reports would have to be filed two years after the Treasury issues implementing regulations.        

An additional report would have to be filed every time there is a change in ownership.

There are 10 pages of exceptions listing types of companies from whom reports would not be required. The exceptions include publicly-traded companies, utilities, insurance companies, banks, accounting firms, tax-exempt entities and registered broker-dealers.